£3 trillion cost of telecoms crash

A FRESH round of disasters among telecom companies means that the value of the industry has collapsed by a staggering £3 trillion from its peak, new figures show. To put this mind-boggling figure into context, that is three times the entire annual output of the British economy - or nearly £3,000 for every phone owner in the world.

The scale of the crash far exceeds the bursting of the dotcom bubble. And it dwarfs the £550 million fall in Asian stock exchanges during the Far East economic crisis of the late nineties. Hundreds of thousands of jobs have gone with the collapse of scores of alternative carriers and equipment suppliers. The roll call of casualties includes Marconi, Ionica and Global Crossing - but no business, no matter how big, has been spared.

Last week, WorldCom, the stricken US telecoms company that once outbid BT to buy MCI, was on the brink of collapse after controversial chief executive Bernie Ebbers was forced to quit.

Meanwhile, mobile phone giant Vodafone, once Britain's biggest company, has seen almost £200bn wiped off its stock market value in the past couple of years as investors hung up on the overreaching ambitions of chief executive Sir Christopher Gent. Humiliatingly for him, the shares have now fallen below the psychologically important 100p mark.

The collapse in Vodafone's value forms a big chunk of the estimated £2 trillion that has evaporated since telecoms mania peaked in March 2000 (see graphs right).

And it is not just shareholders who have been burned. Having rushed to lend money to the telecoms sector, banks have been left holding dud loans estimated at more than £1 trillion. Add that to the £2 trillion fall in share values, and you have the total telecoms loss - £3 trillion.

Mountainous debts now threaten the survival of some of the industry's biggest names:

• Cable operator NTL goes into protective bankruptcy in America tomorrow as part of a £6 billion rescue package.

• Former stock market darling Energis now has a swarm of vulture capitalists picking over its bones. It ran up huge debts building a fibre optic network in Britain and Germany, but ran out of cash at Christmas.

• And last week 1,500 jobs were axed at Telewest, the struggling cable TV and phone company. A source at the Communications Workers' Union said the latest cuts were a double blow for workers.

'Most were buying shares in the company too - they have seen the value collapse,' a spokesman said.

Telewest, once valued at £16.3 billion, is now worth £288 million, having lost 92% of its value in the past year. It will also go into administration or restructuring talks similar to those now going on at NTL and Energis.

Companies making the equipment used by service providers have fared just as badly. The likes of Nortel, Lucent, Ericsson, Siemens and, of course, Marconi, have laid off staff in droves. Announcing a further 6,500 job cuts last week, Heinrich von Pierer, Siemens' chief executive, said: 'Many carriers are no longer struggling with margins and for customers - they are fighting for survival. The situation is dramatic in the US and I do not see a marked improvement in the next 12 to 18 months.'

Perhaps the most enduring legacy of the boom and bust in telecoms is buried deep in the ground. Huge amounts of fibre optic cable were laid across the world to carry the anticipated explosion in traffic, but only a fraction of this network is active.

London alone has enough fibre capacity to serve the demand of the 40 busiest cities in Europe six times over, according to Stephan Beckert, research director of consultancy TeleGeography.

The picture is repeated everywhere. Even if so-called 'dark fibre', which does not have equipment attached to it to handle phone calls or data, is excluded, only about one to two% of fibre capacity is being used, he said.

It is this glut of bandwidth - the capacity to transmit voice and data - that has sent prices tumbling. The cost of bulk traffic has fallen by 70% in each of the past three years. The glut is so great that if the world's six billion people talked constantly on the phone for the next year, their words could be transmitted over the potential capacity within a few hours.

The few remaining cheerleaders for the sector contend that though prices are falling, demand is rocketing. 'That's true up to a point,' said Beckert. 'Traffic is growing about 175% a year - almost entirely because of the internet.' But there is no end in sight to the price pressures crippling the industry. Beckert said: 'There are signs that the big price falls may be ending, but the excess capacity is not controlled by a few big players, but by perhaps 30 or 40 firms with large amounts of fibre. Cutthroat competition is here for a long time.'

And that means many more corporate casualties will be piled on to the telecoms funeral pyre.